Each credit card comes with an upper limit for spending in a billing cycle. This is called the Credit Limit. A credit limit is set on your card when it is issued. The limit is set based on your credit score, your income and other factors like the amount of debt already held by you. The policies set by the bank also matter here.
The credit card issuer or the bank wants to ensure that the amount spent by you is well within your capacity to pay back, hence the credit limit.
The credit limit can be increased or even decreased after the issue of the card based on your spending, repayment pattern and other policies as decided by the issuer. If you been prudently paying back all credit card outstanding bills on time and using your credit card within the limit, you may be given an option to increase your credit limit. You can exercise your choice.
What is a Credit Card Over-Limit Fee?
The fee that is charged by the credit card issuer/ bank when the usage exceeds the credit limit is called the Overlimit Fee. It is set to avoid unnecessary hassles and embarrassments to the user while completing a transaction. Imagine you are utilizing your credit card in an emergency situation and you are in desperate need to see the payment go through. If the transaction is rejected, then it might create more problems for you.
A credit card over-limit fee is a penalty charged when you exceed the maximum balance, or limit, on your credit card. This fee is added to the balance that you must repay to your credit card company.
Your credit limit is the maximum amount of credit the credit card issuer has made available to you. In most cases, if you try to make a charge that would push your balance over that limit, your credit card will be declined and the transaction won’t be processed.
If your credit card issuer does not stop you from going over your credit limit, they may charge an over-limit fee. This fee is the penalty for going above the maximum balance allowed on your card.
How Can You Avoid Credit Over Limit Fee?
- Know your Card Well: It pays to clearly understand the fee and charges levied by your card issuer so that you can be aware of the consequences.
- Beware of your Credit Card Limit: This is an important figure every credit card user should be aware of so that you know when to stop utilizing the card.
- Opt for balance updates: You can subscribe to balance updates from your credit card over SMS or an email to know your transactions and the remaining balance after each transaction.
- Plan your spending on the Card: It is good to draw up a budget on your credit card spending so that you can avoid overspending.
- Check with your Bank if you can opt out of Overlimit Fee: If you feel you have a tendency to overspend on your card, you might want to opt out this fee and instruct your bank to disallow transactions beyond your limit. Talking to your bank in this regard will be helpful.
Five ways to avoid Credit Card over limit charges
Credit cards are handy in times of urgent shopping, bill payments and much more. But if you ask people what comes to their mind when they think of Credit Cards, the response mostly would be the fear of accumulating debt. While Credit Cards offer numerous offers, benefits, and privileges, many end up paying over the credit limit.
Credit Card is indeed an effective tool and profitable when the right card is chosen and managed meticulously. Let’s look at what goes wrong and how we can manage it effectively to reap the benefits.
1. Know your Card
Sometimes, you might run into hideous surprises thrown by the bank in terms of additional charges which you may not be aware of while purchasing it. When you apply for a Credit Card, go through the terms and conditions thoroughly and have a complete knowledge about its features and benefits.
2. Beware of your credit limit
Not knowing your credit limit could turn out to be quite a disaster. When you go on a shopping spree unmindful of your credit limit, it is highly probable that you will go over your credit limit. You can always log in to your online account or call up the credit card customer care service to know your credit limit. As the issuers change the credit limits frequently, it is always better to monitor it regularly.
3. Get updates on balance alerts
Some credit cards send email alerts and text messages to the cardholders when their balance is within the certain percentage of the credit limit. Enroll in such balance alerts and stay updated of your balance and limit.
4. Opt out of Credit Limit Fees
The credit card issuers are prohibited from automatically enrolling cardholders in over-the-limit fee. Hence, be aware of it if you are enrolled without your knowledge. If you opt-in, the best way to avoid over limit fee is, stay under your credit limit.
5. Plan and get your limit raised
If you foresee, your spending might go up in the upcoming month. It is better to call up the Credit Card Customer service and increase your credit limit to avoid over limit charges.
What to do if you are charged a Credit Limit Fee
Your credit card issuer may be willing to waive the over-the-limit fee the first time you go over your credit limit. Just call your credit card issuer and ask if you can have the fee waived. They may be willing to remove the fee from your account as long as you’ve otherwise kept your account in good standing.
Otherwise, if you can’t get the fee removed, pay your balance well below the credit limit to prevent being charged a fee next month. You’ll have to reduce your credit card balance enough so that interest and fees won’t put you over your credit limit again next month.
How does Credit Card over limit fee affect your Credit Score?
You might have a doubt in your mind on if paying a credit card over limit fee will it end up affecting your credit score and if it will be reported to the credit bureau. A payment of credit card over limit fee will not be reported to the credit bureau and it will not affect your credit score.
However, there is another facet to the Over limit Fee that you should be mindful of. If you have paid a over limit fee, it is clear that you not only used the entire credit limit but also overshot it. This shows that your credit utilization has gone higher.
Experts advise a credit utilization limit of below 30%, i.e. you should utilize only up to 30% of the set credit limit during each billing cycle. Doing this will portray that you are responsible with your card usage and hence, improves your credit score. While on the other hand, credit utilization over the limit is clearly not a good indicator of credit healthy behavior. One odd instance of Over Limit may result in a small dip in your credit score but when used frequently will result in major effect on your credit score.
Credit Card over Limit Fee
Each credit card comes with an upper limit for spending in a billing cycle. This is called the Credit Limit. A credit limit is set on your card when it is issued. The limit is set based on your credit score, your income and other factors like the amount of debt already held by you. The policies set by the bank also matter here.